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spk08: Greetings. Welcome to TriPoint Homes' fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to David Lee, General Counsel. Thank you. You may begin.
spk01: Good morning and welcome to TriPoint Homes' earnings conference call. Earlier this morning, the company released its financial results for the fourth quarter of 2021. Documents detailing these results, including a slide deck, are available at www.tripointhomes.com through the Investors link and under the Events and Presentations tab. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risks and uncertainties. A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through TriPoint's website and in its SEC filings. Hosting the call today are Doug Bauer, the company's chief executive officer, Glenn Keeler, the company's chief financial officer, Tom Mitchell, the company's chief operating officer and president, and Linda Mamet, the company's chief marketing officer. With that, I will now turn the call over to Doug.
spk12: Thanks, David. Good morning, and thank you for joining us today as we go over our results for the fourth quarter and full year 2021. provide an update on current business conditions and give insight into the future of TriPoint Homes. 2021 was a record year for our company, capped off with earnings of $1.33 per share in the fourth quarter and $4.12 for the full year. Home sales revenue rose 15% year over year for the quarter on a similar increase in new home deliveries. And our home sales gross margin for the quarter was 24.4%, which was an increase of 120 basis points year over year. SG&A expenses as a percentage of home building revenue for the quarter improved 140 basis points to 8.5%, a record low for the company. For the full year, we delivered 6,188 homes, which exceeded the high end of the original guidance we gave at this time last year. We were able to achieve all of this despite persistent industry-wide supply chain challenges. We credit and thank our experienced and skillful teams who looked for creative solutions and took proactive approaches to new home starts, material sourcing, and construction to get homes completed for our customers. Our sales base for the fourth quarter came in at 4.3 homes per community per month, which is well above seasonal norms for that time of the year. Demand for new homes continue to outstrip supply in our markets during the quarter, a dynamic that has carried into 2022. Buyers continue to exhibit a strong sense of urgency to own a home, driven by strong demographics, a migration to lower cost markets, and an overall change in attitude towards home ownership brought about by the pandemic. Leading the way in this demand surge is the millennial cohort. This demographic represents 57% of our home buyers in backlog and is a sizable population that should fuel the new home market for years to come. Another important demographic segment for our industry are the baby boomers who have accumulated wealth and are now looking for new home alternatives. We have strategically positioned our company to address these demographics and believe we are primed for ongoing positive results. We made significant strides in our return metrics during the fourth quarter, culminating in a return on average equity of 20.3% for the full year 2021. We achieved this goal through several strategic initiatives. including our one-brand launch at the beginning of last year, the ongoing monetization of our long-dated California assets, increased profitability across our home building platform, improved scale in our early stage divisions, more efficient land management, and consistent share repurchases. Our one-brand launch in January of 2021 has had the impact we anticipated. giving our company a unified brand message across our home building platform, streamlining our marketing efforts, and lowering our overhead costs as a percentage of total revenue, which was reflected in our SG&A percentage of 9.6% for the full year 2021. With respect to our California long-dated assets, we have a number of positive developments to report. we continue to generate strong orders and profits from our existing communities, particularly in Los Angeles, San Diego County, and the Inland Empire, thanks to our favorable land bases and outstanding market position. We opened our 292-unit targeted planned community Altus at Skyline in Santa Clarita in the fourth quarter, as well as our 844-unit planned community Citro in Fallbrook. Both feature new home options at attainable prices for their respective buyer segments, and the initial response has been tremendous. In the Inland Empire, our planned community of Atwell, with its detached entry-level and first move-up product generated over 21 orders per month in the fourth quarter. These California communities demonstrate our key focus on developing a mix of entry-level and first move up product in core sub markets. Despite rising home prices, our median sales price of the single family homes in the fourth quarter in California was $599,000 compared to the state's median single family existing home price of approximately $797,000. In addition to our California divisions, we saw excellent growth in financial results from our home building operations around the country. with 60% of our fourth quarter deliveries generated outside of California. This strategic focus to diversify our company from a geographic perspective started several years ago and is providing greater opportunities for us to offer more entry level and first move up price points while producing more efficient returns. We are especially pleased with the progress we have made in our newer divisions in Sacramento, Austin, Dallas, and the Carolinas, which are making significant contributions to the bottom line with a substantial runway for growth. We made considerable investments in our operations in 2021 by enhancing our technology platforms, introducing more efficient and cost-effective floor plans, and refined our design studio process. These initiatives will directly result in improved efficiency and returns. Another focus has been our lot option agreements and land banking arrangements. Total lot counts stood at over 41,000 lots at year end, with 47% controlled at year end versus 37% a year prior. We believe this land approach lowers the risks that are inherent in the land and land development business while improving our returns over time. The final component of our return improvement strategy has been our share repurchase program. And we were once again active buyers of our stock in the fourth quarter, purchasing more than 2.7 million shares at an average price of $22.64. This brought our full year total to over 13 million shares repurchased at an average price of $21.13 for an aggregate dollar amount of $276 million. Yesterday, our board authorized an additional $250 million under our existing stock repurchase program as we remain committed to this program and view it as a productive use of our capital as well as a signal of confidence in TriPoint's future. 2021 was a record-breaking year for our company, and we believe we are poised to improve on those results in 2022 for a number of reasons. First, we started 2022 with a healthy backlog of over 3,100 homes. Our buyers and backlog, who have been pre-qualified through our mortgage affiliate, have an average debt-to-income ratio of 39% and an average FICO score of 748. With this deep backlog and the quality of our buyers, we are well positioned to deliver on our guidance, even with the uncertainty of rising interest rates. Second, demand has once again accelerated in 2022, building on already strong results we experienced in the fourth quarter. With the extremely low supply of housing in both the resale and new home markets, coupled with our strong buyer profile, we feel demand will remain healthy. We are currently managing sales at over 50% of our communities in an effort to account for rising costs, and to maximize profits while matching sales cadence to our production capacity. Third, we are extremely pleased with our land pipeline and expect to open between 180 and 200 new communities over the next 24 months. The majority of those communities are located in our growth areas outside of California and in the more affordable entry level and first move up segments. Finally, with an all-time low net debt to net capital ratio of 21.1%, our balance sheet strength and our ability to generate positive cash flow from operations gives us the necessary liquidity to continue to grow our business and repurchase stock for strong returns to our shareholders. With that, I'd like to turn it over to Glenn, who will provide more detail on our results this quarter and give an update on our forward-looking guidance. Glenn?
spk02: Thanks, Doug, and good morning. I'm going to highlight some of our results and key financial metrics for our fourth quarter and then finish my remarks with our expectations and outlook for the first quarter and full year 2022. At times, I will be referring to certain information from our slide deck, which is posted on our website. Slide six of the earnings call deck provides some of the financial and operational highlights from our fourth quarter. As Doug mentioned earlier, demand continued to be strong in the fourth quarter with an absorption rate of 4.3 homes per community per month, which is an elevated sales pace for a fourth quarter from a historical perspective. Order activity was healthy across all geographies with the west region reporting an absorption rate of 4.3 homes per community per month. The central region experienced an absorption rate of 3.9 and the east had an absorption rate of 4.9. Demand has further accelerated into the first quarter of 2022 with an absorption rate over five for the first six weeks of the year. We reported outstanding results on all key metrics this quarter that either met or exceeded our stated guidance. We delivered 1,885 homes, which was a 15% increase year over year. Home sales revenue was $1.2 billion, also an increase of 15%, and our average sales price was $637,000. Our home building gross margin percentage for the quarter was 24.4%, a 120 basis point improvement year over year. If you were to exclude impairments, our home building gross margin would have been 26.1% for the quarter. The strength of our margins were a result of our ability to raise prices during the year to more than cover the cost increases we experienced. Finally, SG&A expense as a percentage of home sales revenue came in at 8.5%, a record for any quarter for the company, representing a 140 basis point improvement as compared to the fourth quarter of 2020. The improvement was the result of several factors including increased leverage on our fixed costs due to the growth in revenue, efficiencies related to our shift to one brand, and taking advantage of the strong market conditions to streamline our advertising spend. Turning to communities, in line with our guidance, we opened 21 new communities during the quarter, bringing our total to 72 new community openings for the full year. For 2022, we plan to open 15 new communities in the first quarter and 35 new communities in the second quarter. We expect to open another 40 to 50 new communities in the second half of the year to bring the total for the year to between 90 and 100 new communities. As a result, we anticipate ending 2022 with between 150 to 160 active selling communities. Looking at the balance sheet, at quarter end, we had approximately $3.1 billion of real estate inventory. Our total outstanding debt was $1.3 billion, resulting in a debt-to-capital ratio of 35.3%. and a net debt to net capital ratio of 21.1%. We ended the quarter with $1.3 billion of liquidity, consisting of $682 million of cash on hand and $601 million available under our unsecured revolving credit facility. We generated positive cash flow from operations of $420 million for the full year of 2021, while spending approximately $875 million on land and land development for the full year. For 2022, we expect to generate positive cash flow from operations, and spend between 1.1 and 1.3 billion on land and land development. Now I'd like to summarize our outlook for the first quarter and full year. For the first quarter, we anticipate delivering between 900 and 1,100 homes at an average sales price between 650,000 and 660,000. We expect home building gross margin percentage to be in the range of 25% to 26% for the first quarter of 2022 and anticipate SG&A expense as a percentage of home sales revenue to be in the range of 13% to 13.5%. Lastly, we estimate our effective tax rate for the first quarter of 2022 to be in the range of 25% to 26%. For the full year, we anticipate delivering between 6,500 and 6,800 homes at an average sales price of $660,000 to $670,000. We expect our home building gross margin range to be 25% to 26% for the full year, Our SG&A expense ratio is expected to be in the range of 9.7% to 10.2%. Finally, the company is forecasting its effective tax rate for the full year to be in the range of 25% to 26%. I will now turn the call back over to Doug for some closing remarks.
spk12: Well, thanks, Glenn. We have a lot to be proud of with our results in the fourth quarter and full year 2021. We met or exceeded our previously stated guidance on key operational metrics, with a return on average equity of more than 20% for the year, despite ongoing industry-wide supply chain challenges. We also position our company for further growth in 2022 and beyond, thanks to a sizable year-end backlog and a substantial increase to our total lock count outside of California. We achieved this while also repurchasing more than 13 million shares of our stock during the year generating positive cash flow from operations and maintaining a healthy balance sheet. Given these positives, the extremely low supply of housing and strong demographics, we believe TriPoint Homes is poised for a very bright future. Finally, I'd like to thank all of the TriPoint Homes team members who have contributed to this record-setting year. Our people continuously impress me with their talent, dedication, and creativity that helped make this company what it is. We achieved several milestones in 2021, including record-breaking revenues, operating margin, and earnings per share. And our successful year was not just revenue-driven. We are constantly looking for ways to build on our passionate culture, which is validated by our Great Place to Work certification. I am gratified to work with our exceptional teams, and I deeply appreciate their efforts. That concludes our prepared remarks, and now we'd like to open the call up for questions. Thank you.
spk08: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. Our first question is from Steven Kim with Evercore ISI. Please proceed.
spk04: Thanks very much, guys. Yeah, strong results. And I'm really curious if you could provide a little bit more color around your comment about the first six weeks and absorptions being over five. Obviously, that's a strong result. But I was wondering if you could give us some sense of how your pricing power has been moving as well, and probably more importantly is the starts and your cycle times, how that's been progressing in the first six weeks from what you can tell.
spk10: Good morning, Stephen. This is Tom. A big question there. There's a lot there, but all fairly good news. Relative to absorptions and orders, this year we're off to a really strong start, and we anticipate results that are going to be equal to or greater than next year. Our January was phenomenal, and that's continued right into February, so we're expecting a strong spring selling season. On pricing, we continue, because of high demand, to have pricing power, and so we continue to be able to price our product to offset the rising cost pressures that we continually feel. And we feel in good shape that that's going to continue through the spring selling season as well.
spk12: Steven, this is Doug. I'll add that our goal as a company is to have everything started by the end of May because it's a very uncertain environment. You know, the best way to, because of the supply chain, as you know, it's well documented. So this is not new news. So You know, we're pushing all our teams to get everything in the ground by May so we can have a successful year.
spk04: Gotcha. So I take it from that comment that certainly we're not seeing any improvement in the cycle times here, you know, as we enter this year. So I guess, are you seeing any worsening of cycle times? And could you give us a specific number on what you did in terms of starts in the fourth quarter?
spk10: Go ahead, Linda.
spk09: Sure. Steven, this is Linda. In terms of stats, in the fourth quarter, we started 1,377 homes. Of those, 49% of them were spec stats. And then, Tom, you want to address the cycle time?
spk10: Yeah. Relative to cycle time, we are not seeing any further declines to our cycle times. We're managing that quite well. And as Doug said, the teams are being very creative in finding solutions to offset supply chain issues. So we're holding pretty good relative to that. But it is a significant increase year over year. It's probably about, on average, a 30-day delay from where we were a year ago.
spk04: Yeah, that all makes sense and is consistent with what we're hearing elsewhere, too. Last thing for me is yesterday was great. You talked about, among a few things, shift to one brand. Can you give us a sense for how much impact or benefit you got from that specific move?
spk02: I don't think we have said anything specifically from a dollar amount perspective. I think it's because it's hard to parse between the really strong market conditions we were in versus the specifics to one brand. But there definitely are a lot of efficiencies when it comes to marketing for one brand versus six, as we were doing before. So, yeah. and that's baked into the good numbers you saw.
spk04: Sure. Okay. Great. Well, thanks very much, guys. Great results. Thank you.
spk08: Our next question is from Tyler Vittori with JANI. Please proceed.
spk16: Thank you. Good morning. I wanted to start on the gross margin side of things, 25 to 26 for Q1 and same for the full year. Can you talk a little bit more about how you're thinking about the potential cadence and progression of gross margin as we go through the year and also interested, you know, your expectation for cost increases that are embedded in that guidance as well.
spk02: Sure. Tyler, it's Glenn. I'll take that one. I think the margins are going to be relatively consistent as you go through the quarters at that 25 to 26%. And we did, you know, we do our plan based on current costs and current revenues. And so that's how we put our plan together. But, you know, we are assuming, you know, costs are going to rise. And we are planning on, based on the market conditions that Tom said, offsetting those with price increases.
spk16: Okay, great. In the preparer marks, you talked about managing sales in 50% of your communities. Just remind us how that compares with prior quarters.
spk12: It is, Doug. It decreased at the end of the third quarter, and then it picked back up in the fourth quarter as supply changed. supply chain challenges continue.
spk15: Okay, and the decision to do that, you know, that's not related to demand at all, correct?
spk12: That's correct.
spk15: Okay.
spk12: Demand is very strong. I mean, demand is very strong. It's, you know, the supply chain is a huge factor, and it's mostly at the front end. It not only is the supply chain, but it's also the municipalities that we deal with across the country, and this continuous testing and COVID protocols. So, hey, it's well documented. You know, we're set up for another strong record year, hopefully in 22. We had a record year in 21. But it's really just managing through the supply chain. So there's always going to be some bumps in the road, but we're very optimistic. The demand the first through February here has been very, very strong. So it should be a good year.
spk15: Okay, great. I'll leave it there. That's all for me. Thank you. Thank you.
spk08: Our next question is from Alan Ratner with Selman and Associates. Please proceed.
spk03: Hey, guys. Good morning. Congrats on the strong quarter and year. So first question, Doug, I'd love to, and I'm sure this ties in a little bit to the sales limitations, but I'd love to hear just how you're thinking about raising prices in the current environment, you know, whether Obviously, you're still seeing very strong demand, but has the increase in rates changed the way you're thinking about pushing price? Are you perhaps being a little bit more conservative there, just given the affordability impact, or is that not really factoring into your thought process at this point?
spk12: Good question, Alan. It definitely factors in to our thought process. Just for some data out there, last year, On average, we had 15% revenue increases versus a 13% increase in direct. So, you know, now to your question, we definitely are being very measured in our pricing increases to offset our costs that are being thrown at us. So we'll continue to do that. Demand supports it. But I guess the best way to say it is we're being very measured because we realize that that prices have gone up quite a bit over the last 18 months, and it's not a secret that rates are going to go up too. So, you know, that's, you know, we're using strong common sense is what I call it.
spk10: Yeah, Alan, I would add, you know, we're always continually pricing our product to balance pace and price and maximize our profitability there. And with such strong demand, we still see pricing power, and we expect that to continue through the spring selling season. Got it.
spk03: Thanks for that color, guys. Appreciate it. Second question, it wasn't a big amount, but you did take an impairment or maybe it was lot option abandonment this quarter, which was a bit larger than where it's been tracking at. So I'm just curious if you can add a little bit of color behind what drove that this quarter.
spk02: Sure, Alan. This is Glenn. Good question. It was mainly due to one project that was located in the Bay Area. that was kind of a COVID casualty based on where it was located, kind of inner city location. And so we were just having slow sales there, and so we lowered price just to kind of move through the project. So it was kind of a one-off, unique project from that perspective, and that was the bulk of it.
spk13: Great. Thanks for that info, Glenn. Appreciate it. Thanks, Alan.
spk08: Our next question is from Mike Dahl with RBC Capital Markets. Please proceed.
spk05: Hey, guys. This is Ryan Frank on for Mike. Just wanted to touch on kind of the question around pace versus price again. I mean, you guys are selling at five houses a month, which is kind of well beyond normal at this point. It's very strong. So I guess just wondering why you wouldn't be pushing price more and why gross margins are actually, like, sequentially looking like they're going to be down. Can you just help us parse that out, please?
spk12: Well, yeah, I'll take a stab at that. I mean, mortgage rates have gone up about 75 bps since the fourth quarter. So with a rising rate environment and we've got a full year to still execute on, I think it's prudent and smart business management to be more measured in your approach to pricing, pace, along with the supply chain environment.
spk02: And the margins in the first quarter, if that was your question, I mean, those relate to homes we sold back in the first and second quarter of last year where you saw high lumber prices. And so that's kind of reflected in that overall margin. And then for the full year, we are in a tough rising cost environment, and we think we could offset those with price. And if price exceeds cost, you'll see us being at the higher end of that margin range. But that's kind of, you know, why margins are 25 to 26 in the first quarter.
spk05: Got it. And then would there be any, I guess, mixed shift impact throughout the year? Are you expecting that to kind of play a larger role as we go forward on the gross margin side?
spk02: No. I think from a mixed perspective, it'll be relatively consistent throughout the quarter. So I think margins will be, you know, relatively consistent between the quarters based on where we sit today.
spk05: Okay. And then last one, quick one for me is, I guess you guys historically don't sell this type of pace. So what are you thinking about pace kind of going forward over the rest of the year? Presumably it's going to come down, but I guess the magnitude of that, and do you think you're kind of a structurally faster turning company at this point?
spk02: I think compared to, you know, pre-pandemic levels, we're a structurally higher turning company because we have a much more, a greater presence in the entry level and first move up markets. But, you know, relative to this year, how we've looked at the year, yes, higher absorptions in the spring selling season in front half of the year with slower absorptions in the back half of the year, kind of normal seasonality that we saw, you know, last year, but still at an overall elevated pace due to the strong demand.
spk13: Got it. Very helpful. I'll pass it on. Thank you.
spk08: Our next question is from Carl Reihart with BTIG. Please proceed.
spk11: Thanks. Hey, everybody. You guys have been doing a lot of new community openings and planning for more. As you're opening those stores, how are absorptions tracking there? Are you doing what we've seen in the past, meaning you try to set those prices low in early phases so you can raise them through? and your absorption rates tend to be very good when there's a new community opening. So can you just talk a little bit about what that picture looks like relative to your legacy stores?
spk10: Sure, Carl. This is Tom. As you know, we do like to get off to a strong start when we open new communities, but I like to think that there's such a high pent-up demand and anticipation for those new communities. It's not just due to lower pricing. We price to market on our openings, and I think because of our great locations and our focus on design and innovation and our new product types being so well received by the consumer that we get off to a great start. So that continues. We expect it to continue. We're really excited about the new openings that we have coming up. And as you mentioned, this is a big growth year for us. So we think we're moving into a new volume set going forward because of our exciting new communities coming.
spk11: Okay. Thanks, Tom. And then sort of along similar veins, as you're looking at the supply chain continuing to be difficult this fourth quarter and into first quarter, where in the process are you actually releasing homes for sale? Obviously, a lot of your peers are doing it at frame. How early are you putting homes into the market?
spk09: Hi, Carl. This is Linda. You know, we're continuing to balance between to-be-built homes and spec homes. So in the fourth quarter, 52% of our orders were to-be-built homes, and that's slightly down from the prior quarter as we were able to get more spec starts into the ground.
spk13: Okay, thanks, Linda. Thanks, everybody. Thanks.
spk08: Our next question is from Jay McCandless with Wedbush Securities. Please proceed.
spk17: Hey, good morning. Congrats on a great quarter. So on the SG&A percentage, it looks a little higher than what we were expecting for the first quarter. Could you just talk about, you know, is that some cost being built in for all the community growth this year or just less leverage on the top line?
spk02: Yeah, this is Glenn Jay. Good question. And it's a bit of both, right? So, you know, our guidance was 900 to 1,100 deliveries for the first quarter. So there's some top line delivery. There's a fixed amount of G&A that is impacted by the top line in the first quarter, but we are expecting higher sales and marketing costs related to the 90 to 100 new communities we're opening this year, so that's part of it as well. Okay.
spk17: All right. Thank you for that. And then it looks like you guys had less than, I think, 30 finished specs at the end of fourth quarter. I mean, what's the longer-term target for that? And I think, Linda, you said you guys had some success at putting in more specs in the ground, but Where do you envision that going as we move through the year?
spk12: Well, I'll take it. Typically, we like to see about three to four specs per community across the country, but I think it's actually 27, not 30, but maybe off by a couple. I think 12 of those are in Houston or something like that. Yeah, so it's... I'm laughing, Jay, because it's not a lot of inventory, right? And that's part of the issue. There's no inventory, both on the new and resale side. And despite rising rates here in the short term, the consumer is still looking for housing and is in strong demand. So ultimately, we like to see that three to four number, but it's going to take some time to get there.
spk10: But we may not be able to get there given the strong demand. Yeah, exactly. Because as we start specs... they get snapped up and purchased before we can get too far along in the construction process.
spk09: Right. So currently we have eight homes per community, um, sold under construction, um, but those are selling quickly.
spk13: Okay.
spk17: Thanks for that. Um, and then I know, I think Doug, you talked about the prepared comments about the, um, municipal issues starting to flare up again. Now that Omicron seems to be receding, have those started to improve? I think you said it was on the front end, but is it across the board with finals and also with permits, or is it just strictly getting permits pulled and getting moving on the homes?
spk12: Yeah, we see most of the delays in the front end when you say, Tom. I mean, it's between the municipality delays. And Omnicron is, you know, and the mask mandates are, you know, just recently coming off, so it's too early to say how the cities and counties will adopt. Most municipalities are virtual, Jay, so it's still going to be a real labor-intensive process to move through the permitting process. But once you get past the front end of the construction process, we've had pretty good success staying on task.
spk13: Good to hear. Thanks for taking my questions. Yep.
spk08: Our next question is from Alex Barron with Housing Research Center. Please proceed.
spk06: Yeah, thank you, guys, and great job on the year. I wanted to see if you could help me reconcile the guidance in terms of the deliveries for the first quarter versus the full year. 900 to 1100 seems pretty low. So, you know, what's contributing to that? You know, is there any aspect that's weather related or, you know, I mean, you guys didn't hit that level anywhere last year. So I'm just trying to understand that. And then how are you ramping up to the 65 to 6,800? Is that a function of assuming the sales pace, you know, is very strong in the spring selling season or, you know, can you just kind of help us out there?
spk02: Good questions, Alex. This is Glenn. The 900 to 1100 for the first quarter is just a function of timing. So, you know, we had strong absorptions in the fourth quarter, but a lot of those were either unstarted or, as Linda said, just early in the starts. And so those don't deliver until later. And so it's really just just timing. And for the full year, you know, we start with a healthy backlog, about 50% of our guidance and backlog to start the year, and we're off to a strong, you know, sales pace in the beginning of the year. Like Doug said, we're hoping to get all of our starts in the ground by May to hit those deliveries. And so we feel comfortable we'll be able to get up to that 65 to 6,800 for the full year.
spk06: Okay. And, you know, when it comes to, I guess, thinking about the impact of mortgage rates, Obviously, nobody seems to have seen any negative impact yet, but maybe it's too soon. But if the Fed raises as many times as people think, do you guys build that into your assumptions about what's going to happen to the demand and sales pace as the year progresses?
spk12: Yeah, I mean, we do a backlog test. We test our backlog. We've got a very healthy backlog. Stress tests them up to 100 BIPs. As I mentioned earlier, mortgage rates have already increased 75 basis points. I agree with what you're saying, Alex. I do think, though, I think the mortgage rates have already baked in, at least the March announcement. That's my own feeling and actually our mortgage company's feeling too. So, you know, we'll continue to monitor our backlog, offer long-term rate locks as well going into the year. But, you know, the demand is still very strong despite recent increases in rates.
spk10: Alex, this is Tom. Just real quick, absolutely. To answer your question, we do factor in the current rising rate environment into our business plan and guidance. So we have been a little bit more conservative in our assumptions taking that into account.
spk06: And the long-term rate lock, what kind of impact does that have, and is it on your margins or is it on your financial services line? Where would that be reflected, and how much does that cost typically?
spk02: It does get reflected in revenue because it's an incentive we would give to the party, so it would impact margin and, Linda, what's the usual cost or something like that.
spk09: You know, in the current high-demand market, we're finding that we're generally not needing to use a lot of incentive to encourage customers to rate lock. It could be between $1,000 and $2,000 that we might contribute to that at this current time.
spk13: Got it. Okay, thanks, and best of luck.
spk14: Thanks.
spk08: And now our final question is from Deepa Raghavan with Wells Fargo Securities. Please proceed.
spk07: Hi, good morning, everyone. Thanks for taking my question. Start with community count growth, pretty strong, 35%, 40% growth that you're exiting. You talked about it last quarter too. Obviously, you're setting yourself up for a better 2023 and looks like given your land spend, you're continuing to invest in more communities as well. How should we think about 2023 community count growth? Is 2022 your strongest investment in that? And also, any color, if these newer communities you're bringing online this year have more lots than traditionally, and therefore your growth potential is perhaps much stronger in 2023?
spk02: Deepa, yeah, good questions. This is Glenn. You know, we will see community count growth into 23. We haven't given the specific ending community count number, but in Doug's remark, he mentioned we're opening between 180 and 200 new communities over the next 24 months. So similar number of communities open in 23 as 22. So you will see a rise in that ending community count number in 23 pretty significantly. And that will lead to, you know, higher deliveries, assuming, you know, continued strong market conditions. And on the size of communities, overall, there hasn't been a shift, I would say, in larger communities, although I would say that in Texas, for example, where we're really focused on growing that area, we have invested in some larger land positions in Dallas, Austin, and Houston, and so you will see larger community positions in those markets.
spk07: Okay, and as you're investing, are you thinking about Florida markets actively here?
spk02: Say that again, sorry?
spk07: As you are investing, are you considering getting into Florida more actively here?
spk12: We're not actively in Florida, I think is your question.
spk07: Yeah, yeah. As you're investing in land, are you looking to enter that market? That's the one growth market that's pretty, yeah.
spk12: Sorry, go ahead. Yeah. From an M&A standpoint, both organically and in M&A, we continue to look at the southeast. We've got tremendous growth planned, and the land is already owned and controlled for the Carolinas. We're going to look at expanding along the coastal part of the Carolinas, and the rest of the southeast is definitely on our radar screen as we look at our strategic plan of getting up to $6 billion in revenues by 2028. So that's definitely on the radar, but we're currently not building there.
spk07: Okay, got it. My last one. Any sensitivity analysis you could provide on, you know, interest rate moves, every 50 bits move perhaps, you know, might or might not impact your backlog by a certain percentage? Any sensitivities there?
spk10: Yeah, Deepa, as Doug mentioned, we do run a sensitivity on a regular basis relative to our backlog. And our analysis shows that a 50-bip adjustment really has no impact. We have a high quality of backlog, and our buyer profile is very strong. So that component and amount of price movement would not be a factor. As it moves to a 1% increase in interest rates, we have a high single-digit to low double-digit impact on our backlog. And that's as we look at a debt to income ratio. So we feel really good about our backlog relative to a rising rate environment.
spk07: All right. This is helpful. Thanks very much for the color. And good luck. Very strong outlooks. Thank you.
spk02: Thanks, Deepa. Thank you.
spk08: We have reached the end of our question and answer session. I would like to turn the conference back over to Doug Bauer for closing comments.
spk12: Well, thank you everybody for joining us today. We're very proud of our results in 2021 and look to capitalize that in 2022. I hope all of you have a great week and we look forward to chatting with you in April. Thank you.
spk08: Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
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